A mixed close for London equities on Monday highlighted increasing concerns about the UK economy, with businesses bracing for a sharp slowdown and consumer confidence sliding further.
The FTSE 100 index closed up 18.11 points, 0.2%, at 8,102.72. The FTSE 250 ended down 31.60 points, 0.2%, at 20,419.09, and the AIM All-Share closed up 1.84 points, 0.3%, at 712.44.
The Cboe UK 100 ended up 0.1% at 812.53, the Cboe UK 250 closed down 0.4% at 17,876.94, and the Cboe Small Companies ended up 0.5% at 15,866.67.
Figures from the Office for National Statistics showed the UK economy ground to a standstill in the third quarter of 2024.
The ONS said that in the three months ended September 30, real GDP growth was zero compared to the second quarter, revised down from the first estimate increase of 0.1% growth.
Economists had expected growth to remain unchanged at 0.1%.
Laith Khalaf at AJ Bell, said: ‘This is unfestive news for the chancellor and the prime minister, who have promised to get the UK growing again. Clearly the government can’t be expected to turn on the taps of the whole economy in its first three months, but the fact GDP has flatlined does outline the scale of the problem.’
Looking ahead, Elliott Jordan-Doak at Pantheon Macroeconomics expects GDP growth to rebound to 0.2% quarter-to-quarter in the three months to December.
He then predicts growth next year to average a ‘healthy’ 0.4% quarter-to-quarter.
‘Real disposable income growth will slow next year, but we think the saving rate dropping to 10.1% in the third quarter, from 10.3% in the second quarter shows that consumers are content with their levels of savings, and that the saving rate dropping further will support consumption growth in 2025.’
Meanwhile, UK businesses issued a stark warning to Chancellor Rachel Reeves that the economy is ‘headed for the worst of all worlds’ with activity expected to fall sharply in the first three months of 2025.
A survey by the Confederation of British Industry found firms expected to reduce both output and hiring.
The chancellor’s hike to employers’ national insurance, set to rake in around £25 billion a year, was highlighted as one of the reasons for the gloomy outlook.
Alpesh Paleja, the CBI’s interim deputy chief economist, said: ‘There is little festive cheer in our latest surveys, which suggest that the economy is headed for the worst of all worlds – firms expect to reduce both output and hiring, and price growth expectations are getting firmer.
‘Businesses continue to cite the impact of measures announced in the Budget – particularly the rise in employer NICs – exacerbating an already tepid demand environment.’
Completing a trio of downbeat reports, confidence in the UK economy among consumers is waning, according to the British Retail Consortium.
The BRC consumer spending monitor for December showed a drop in public confidence in the state of the UK economy, while plans for personal spending also fell.
The personal financial situation index remained in negative territory, though steady, at minus 3 points, BRC said. However, the index for the state of the economy fell to negative 27 points in December from negative 19 in November, and the overall personal spending index fell to negative 3 points from positive 3.
AJ Bell’s Khalaf added: ‘All in all it’s a pretty dreary economic picture as we enter the new year. The latest readings and forecasts also somewhat put the kibosh on the idea that the UK might reap an economic dividend from the political stability provided by a new government with a strong majority. Then again, we don’t know whether the alternatives might have been worse for the economy.’
The pound was quoted lower at $1.2525 at midday on Monday in London, compared to $1.2549 at the equities close on Friday. The euro stood at $1.0399, unchanged.
Against the yen, the dollar was trading higher at JP¥157.12 compared to JP¥156.58 on Friday.
In European equities on Monday, the CAC 40 in Paris ended little changed, and the DAX 40 in Frankfurt shed 0.2%.
In New York, stocks were mixed. The DJIA was down 0.4%, the S&P 500 index was 0.1% higher, and the Nasdaq Composite rose 0.5%.
Back in London, Direct Line rose 4.0% after agreeing a £3.7 billion takeover by London-based insurer, Aviva.
The cash-and-shares bid values each share in Bromley-based Direct Line at 275p each.
Direct Line shareholders will receive 0.2867 of an Aviva share, 129.7p in cash, and up to 5p in dividend payments for each Direct Line share held.
Aviva Chief Executive Amanda Blanc said the deal is ‘excellent news’ for the customers and shareholders of Aviva and Direct Line.
‘It builds on our track record of delivering four years of strong financial performance and, in line with our strategy, it accelerates our growth in capital-light business.’
Aviva expects earnings per share accretion of around 10% once pretax cost synergies of £125 million are fully realised, with underlying EPS accretion expected from the first full year post-completion.
FTSE 100-listed Aviva rose 0.7%.
Airtel Africa led the FTSE 100 risers, up 3.7%, after launching an up to £100 million share buyback.
The telecommunications and mobile money services provider in 14 countries in Africa aims to complete the buyback by April 24.
It started the programme with a $50 million first tranche.
A previous $100 million buyback was launched in March and completed in October.
AstraZeneca climbed 1.6% after receiving approval in the European Union for Tagrisso, its non-small cell lung cancer treatment.
The Cambridge-based pharmaceutical company said the approval followed its Laura phase 3 trial, which demonstrated that Tagrisso extended the median progression-free survival for adult patients to more than three years.
It also reduced the risk of disease progression or death by 84% compared to a placebo.
Elsewhere, Petrofac fell 20% after entering a binding lock-up agreement with key creditors on the terms of a ‘comprehensive restructuring’ of its debt.
The restructuring includes material dilution ‘while preserving some value’ for existing shareholders; upsizing a new equity issuance by up to $25 million; a retail offering worth around $8 million in 2025; and converting about $772 million of existing debt into equity.
Meanwhile, Seeing Machines climbed 4.5% after it announced a significant investment from, and collaboration with, Mitsubishi Electric Mobility Corp.
Canberra-based Seeing Machines designs artificial intelligence-powered operator monitoring systems to enhance transport safety. It said it secured a £26.2 million strategic investment as part of a collaboration agreement.
The investment, via a subscription for shares at 4.09 pence each, is worth around 15% of Seeing Machines’ share capital.
Peel Hunt anticipates this investment secures around 18 months of runway for Seeing Machines, by which time the company aims to be cash generative.
‘Even if this timeline slips due to weaker-than-expected OEM manufacturing, we estimate Seeing Machines will have a significant cash buffer,’ the broker added.
Brent oil was quoted at $72.09 a barrel at the London equities close Monday, down from $72.71 late Friday.
Gold was quoted at $2,611.83 an ounce at the London equities close Monday, lower against $2,627.90 at the close on Friday.
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